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(x) Stock Option Gain Deferrals Compensation consultants have developed a transaction that they believe enables employees to defer the taxable income derived from the exercise of stock options (and that also delays the employer s tax deduction) by deferring the employees receipt of the shares of the stock The transaction, typically referred to as a stock option gain deferral transaction, is accomplished by a stock-for-stock exercise An employee receives new shares equal to the value of the shares tendered, and the remaining shares under option are credited to the employee s deferred compensation account The employee then receives the shares from the deferred compensation account at retirement or some other future date In EITF Issue No 97 5, Accounting for the Delayed Receipt of Option Shares upon Exercise under APB Opinion No 25, the Task Force addressed whether certain characteristics of stock option gain deferral rrangements would cause a new measurement date (or variable plan accounting) for nancial reporting purposes under APB Opinion No 25 An FASB staff announcement resolved the issue prior to the EITF s reaching a consensus The announcement provides that variable plan accounting would be required if the employee does not meet the necessary six-month holding period set forth in EITF Issue 84 18, Stock Option Pyramiding, which is discussed above In addition, the announcement provides that an award that permits diversi cation into alternative types of investments makes the award subject to variable accounting Accordingly, if an employee uses mature shares in the stock-for-stock exercise and if an award does not permit diversi cation, the delayed delivery of shares generally would not create a new measurement date or variable plan accounting (xi) Use of Stock Option Shares to Cover Required Tax Withholding EITF Issue No 87 6, Adjustments Relating to Stock Compensation Plans, addresses an issue that is similar to the stock option pyramiding issue discussed under (ix) above The Task Force reached a consensus that an option that allows the use of option shares to meet tax withholding requirements may be considered a xed plan if it meets all the other requirements of APB Opinion No 25 No compensation needs to be recorded for the shares used to meet the tax withholding requirements The Task Force noted that this treatment would be limited to the number of shares with a fair value equal to the dollar amount of only the required tax withholding Therefore, even though the net number of shares to be issued would not be known at the date of grant under these circumstances (since the shares to be withheld to cover the required tax withholding will not be known until the exercise date), plans with tax withholding features may be accounted for as xed plans as long as they meet the other requirements for a xed plan under APB Opinion No 25 (d) ALLOCATION OF COMPENSATION COST: DETERMINING THE SERVICE PERIOD APB Opinion No 25 requires that compensation cost related to stock option, purchase, and award plans should be recognized as an expense of one or more periods in which an employee performs services The grant or award may specify the period or periods during which the employee performs services or the periods may be inferred from the terms or from the past pattern of grants or awards FASB Interpretation No 28 also indicates that compensation cost with respect to variable awards should be allocated to expense over the period(s) in which the employee performs the related services However, the FASB went a step further in this interpretation by specifying that the service period is presumed to be the vesting period The vesting period is normally the period from the date of the grant of the rights or awards to the date(s) they become exercisable These criteria for determining the service period are considerably more de nitive than the guidance provided in APB Opinion No 25 and, in the authors view, should be used for determining the service period for awards made pursuant to all stock-based compensation awards (ie, both xed and variable awards) (i) Allocation of Compensation Cost Related to Fixed Awards Compensation cost related to xed awards should normally be allocated to expense over the service period on a straight-line basis On rare occasions, however, circumstances may arise that would justify allocation on another basis In any event, the method used should be systematic, reasonable, and consistently applied.

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If options are granted to employees to purchase shares at the formula price and the employees can resell the options, or the shares acquired upon exercise of the options, to the company upon retirement or other termination of employment, or at xed or determinable dates, the consensus of the EITF is the same for both privately held and publicly held companies The consensus indicates that compensation expense should be recognized for increases in the formula price from the grant date to the exercise date (ie, the award should be accounted for as a variable award) The onsensus further indicates that the expense previously recognized should not be reversed upon exercise of the option, and that additional expense would be recognized if the shares are sold back to the company shortly after exercise, as required by paragraph 11(g) of APB Opinion No 25 . Printer In Visual C#.NET Using Barcode maker for .Related: Print QR Code VB.NET Size, Java QR Code Generator Data, Generate QR Code Word

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